On Friday, the House Ways and Means Committee released a markup of its proposed budget reconciliation bill. There’s a ton of information in the $3.5 trillion plan, but today, we’re interested in a small portion of the 645-page “Budget Reconciliation Legislative Recommendations Relating to Infrastructure Financing, Green Energy, Social Safety Net, and Prescription Drug Pricing” section—specifically the parts that deal with incentives to decarbonize our vehicle fleet.
Beginning in 2010, the Federal government has incentivized people to buy or lease new plug-in vehicles by offering them a tax credit. The credit is based on battery size, starting at $2,917 for a vehicle with a 5 kWh battery and providing an additional $417 per extra kWh, topping out at $7,500. However, the credit only applies to the first 200,000 plug-ins sold by an OEM, at which point the credit begins to expire. To date, only Tesla and General Motors have sold enough plug-in vehicles to see their credits sunset.
If the budget reconciliation bill passes as is, the current tax credit (known as 30D) goes away, to be replaced by several new purchasing incentives for greener, more efficient vehicles.
Up to $12,500 for new EVs
New plug-in vehicles would qualify for a $4,000 tax credit as a base amount. Vehicles “placed in service” before the end of 2026 would qualify for an additional $3,500 tax credit as long as their battery capacity is at least 40 kWh, increasing to 50 kWh for new vehicles put on the road from 2027 onward.
In order to encourage domestic production—these are US congresspeople, after all—there’s an additional $4,500 credit available as long as the vehicle was manufactured at a unionized US facility. This would exclude Tesla, which has heavily resisted its workers’ unionization attempts, as well as some of the foreign OEMs that have built factories in anti-union, “right-to-work” states. A final $500 credit would also apply if more than 50 percent of the vehicle’s content, including the battery cells, is made in the USA. The tax credit is even transferable to the dealer on the condition that the savings are passed along to the customer.
Should the bill become law, an electric vehicle could qualify for a tax credit of as much as $12,500, although the new legislation says that the credit cannot exceed 50 percent of the vehicle’s purchase price. The bill also contains a 10 percent tax credit (of up to $2,500) for road-legal electric two- and three-wheeled vehicles capable of going faster than 45 mph (72 km/h).
Terms and conditions apply
There are a few more conditions, however. From 2027 on, the credit will only apply to vehicles that undergo final assembly in the US, and they must weigh less than 14,000 lbs (6,350 kg) and carry more than 7 kWh in battery capacity (for vehicles in 2022 and 2023) or 10 kWh (for vehicles placed in service after 2023).
Secondly, the tax credit is means-tested, so it decreases by $200 for every $1,000 you earn over a threshold of $800,000 if you file jointly, $600,000 if you file as the head of a household, and $400,000 otherwise.
But people with high six-figure salaries are unlikely to find EVs to their tastes that still qualify for the credit. There are price caps on vehicles that can qualify based on body style. In order to qualify for the tax credit, a sedan must cost less than $55,000, a van cannot cost more than $64,000, an SUV can’t cost more than $69,000, and a pickup truck cannot exceed $74,000. Finally, all credits would expire at the end of 2031.
A new tax credit for buying a used plug-in vehicle
Discussions about EV adoption often note that tax credits such as the current 30D tax credit only help customers who can already afford to purchase a brand-new vehicle. Because of that criticism, the bill also includes an incentive for the purchase of used plug-in vehicles.
To qualify, the used EV must be made by a qualified OEM (i.e., one whose vehicles already qualify when new), must weigh less than 14,000 lbs, must have at least 7kWh (if it’s from 2022-2023) or 10 kWh (after 2023), and must undergo final assembly in the US if made after 2027.
Additionally, the vehicle must be two or more model years older than the year in which it’s being bought used and can’t cost more than $25,000. The base used plug-in credit will be $1,250, increasing based on battery capacity to a maximum of 30 percent of the sale price, or $2,500.
This tax credit is also means-tested, but with thresholds of $150,000 (joint filing), $112,500 (head of household), and $75,000 (everyone else). The credit decreases by $200 for every $1,000 of income earned above those thresholds.
Commercial vehicles, fuel cell EVs, and e-bikes
Democratic legislators in the House have paid some attention to users beyond just those who drive electric cars. The bill would also create a tax credit for commercial EVs at up to 30 percent. These vehicles cannot have any internal combustion engine, ruling out plug-in hybrids, and must have batteries with more than 30 kWh.
Next, the tax credit for fuel cell electric vehicles would be extended to the end of 2031. Tax credits are also extended for some electric charging stations—including vehicle-to-grid functions—and hydrogen filling stations.
Finally, the bill makes allowances for e-bikes. From 2022 on, bicycles with pedals and an electric motor of less than 750 W (1 hp) that do not provide assistance above 20 mph (32 km/h) when pedaling or any assistance at all above 28 mph (45 km/h) will qualify for a credit of up to $1,500. These bikes can’t cost more than $8,000 and must have a unique vehicle identification number that is reported to the treasury (like a car’s VIN), and the tax credit is means-tested at the same rate as the used plug-in vehicle tax credit.
Sadly, it’s far from guaranteed that the bill will enter into law as is. The Democratic Party has a narrow majority in the House of Representatives and an even smaller majority in the US Senate, with more conservative senators like Joe Manchin of West Virginia able to bring everything to a halt should they desire. And while the bill is favored by domestic automakers like Ford, General Motors, and Stellantis, Honda and Toyota have both attacked the extra credit that would be allowed for vehicles produced with unionized workforces.